Equity exposure: Easy route to achieve
goals
A 100% debt portfolio means that despite a high
surplus and simple goals, the Dixits may not be able to meet their targets.
They need to start investing in equity funds for a smoother journey.
A clear indication of the growing
investor awareness is the concern over one's financial decisions and
achievement of goals. More and more people are beginning to question their
investments and seeking advice on meeting their financial targets. Piyush Dixit
is one such investor. With a portfolio that comprises only debt, one would
assume he is in a difficult position to reach his goals. Yet, his desire to
seek exposure to equity, combined with a high savings rate, will ensure that he
meets his simple targets with relative ease.
Existing financial status
Piyush,
35, is an engineer by profession and resides in Pune with his 30-year-old wife,
Pallavi, and four-year-old daughter, Shamika. The three live in their own
house, for which Piyush took a loan of nearly `31 lakh and for which he is
currently paying a large EMI.
He
brings in a monthly salary of `74,000, of which a large chunk of `32,000 goes
as home loan EMI. Besides this, the family spends `10,000 in household
expenses, `2,000 for Shamika's education and `1,708 goes towards life and
health insurance premium each month.This leaves them with a surplus of `28,292,
which needs to be realigned to make sure the Dixits are able to meet their
objectives. These include planning a contingency fund, accumulating funds for
the education and marriage of their daughter, and saving for their
retirement.Pankaaj Maalde of Apnapaisa.com charts out a simple plan for the
Dixits.
Insurance coverage
Maalde
begins with the assessment of Dixits' insurance portfolio. Piyush has shown a
degree of awareness when it comes to life and health insurance. He has a term
plan worth `50 lakh to cover his life since he is the sole breadwinner.
However, given his income and the fact that he is repaying a big home loan,
Maalde recommends increasing the life cover to `1 crore. So he should buy
another term plan of `50 lakh, for which the annual premium will be `11,500.
Since Pallavi is a homemaker and does not have an income, she doesn't require
life insurance.
As
for health insurance, Piyush has purchased a family floater plan worth `5 lakh
for himself, Pallavi and Shamika. This should be sufficient for their medical
needs for the time being. However, Maalde suggests that Piyush buy an accident
disability plan worth `50 lakh and a critical illness plan of the same
amount.Both these plans will cost nearly `18,000 per annum. The additional cost
of nearly `1,600 a month for insurance premium can be easily taken care of by
the investible surplus.
Road map for the future
Before
the Dixits begin planning for their daughter's goals and their retirement, they
need to have a contingency corpus in place so that any emergency can be taken
care of without straining their finances.Maalde suggests keeping a corpus equal
to their three months' expenses. Since their current monthly expense is
`45,708, they should accumulate `1.37 lakh. For this, the Dixits can allocate
their cash holding of `20,000 as well as the fixed deposit of `1.2 lakh. This
amount should be invested in a liquid plus or an ultra short-term fund for
better returns.
They
can now start planning for Shamika's education expenses when she is 18 years
old. For this goal, the couple has estimated a need for a high amount of `76
lakh in 14 years. To amass this sum, they should start a monthly SIP in a
balanced mutual fund till the specified term.At an annual rate of 8%, the
couple will be able to gather this sum.
The
next goal for the Dixits is the marriage of their daughter when she is 26 years
old. The Dixits want to amass a sum of `81 lakh in 22 years for this
purpose.Maalde has not allocated any of the existing resources. Instead, he
suggests starting an SIP of `7,000 in mutual funds. Of this amount, the couple
can invest `5,500 in a balanced fund and the remaining `1,500 in a gold fund
till the required period. At an annual growth rate of 8% for both the investment
avenues, they will be able to meet the target in the given time frame.
Finally,
the only remaining goal for the Dixits is retirement, which is 25 years
away.For their retirement kitty, the couple have estimated a need of `2.35
crore on the basis of their current lifestyle and factoring in an annual
inflation of 8%. To achieve this goal, Maalde suggests allocating their PPF
funds of `82,000 and EPF corpus of `3.5 lakh. At a growth rate of 8%, the sum
will yield `1.28 crore in the specified time. This assumes, of course, that
Piyush will continue to work till he is 60 years old and make deposits in the
PPF till that time.
However,
the couple still run short of the desired amount. To accumulate the remaining
sum, they will have to start an SIP of `6,500 in a balanced fund. However, the
Dixits will have only `1,167 as surplus after making the investments for other
goals. So, for now, they can start investing this amount, but should increase
it as soon as Piyush's salary rises or he is able to muster the required sum .
This is because retirement is the most important goal and should not be
ignored. If the couple follows these suggestions, they should be able to
achieve all their financial objectives with little difficulty.
